Business level strategies
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This document discusses different business-level strategies that a firm can pursue to gain a competitive advantage, including cost leadership, differentiation, and focus strategies. It defines each strategy and describes the core competencies, customer needs, and actions required to successfully implement each one. The risks and benefits of each individual strategy as well as integrated strategies are also examined. Overall, the document provides an overview of the key considerations and tradeoffs involved in different business-level strategic approaches.
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Business level strategies
- 1. BUSINESS LEVEL STRATEGY Prepared by : Fejina. P Nikhil. P Sabeena. A. P 1
- 2. 2 Business-Level Strategy Business-level strategy: an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.
- 3. What? Who? How? • Basis of choosing a business level strategy by determining how well a company can compete – What customer need will be satisfied? – Who is to be satisfied? – How will the need be satisfied?
- 4. 4 Core Competencies and Strategy The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets Business-levelBusiness-level strategystrategy StrategyStrategy CoreCore competenciescompetencies
- 5. FIVE BUSINESS LEVEL STRATGIES 5
- 6. Business-Level Strategy • Three basic competitive approaches: – Cost Leadership- To outperform competitors by doing everything it can to produce goods or services at the lowest possible cost. – Differentiation- The differentiated product has the ability to satisfy a customer’s need in a way that competitors cannot. – Focus- Directed toward serving the needs of a limited customer group or segment.
- 7. 7 Cost Leadership Strategy An integrated set of actions designed to produce or deliver goods or services at the lowest cost relative to competitors with features that are acceptable to customers – relatively standardized products – features acceptable to many customers – lowest competitive price
- 8. 8 Cost Leadership Strategy Cost saving actions required by this strategy: – building efficient facilities – tightly controlling production costs and overhead – minimizing costs of sales, R&D and service – building efficient manufacturing facilities – monitoring costs of activities provided by outsiders – simplifying production processes
- 9. 9 Cost Leadership and the Five Forces • Rivalry - competitors avoid price wars with cost leaders • Buyers – shift demand to you, increase market power • Suppliers – increased market power, absorb cost increases (low cost position) • Entrants – entry barriers (scale, learning) • Substitutes – reinvest econ profit to maintain advantage
- 10. 10 Major Risks of Cost Leadership Strategy • There can only be one cost leader • Technological change can eliminate cost advantage • Spillovers lead to imitation • Efficiency focus may create blind spots re: customer preferences
- 11. 11 Differentiation Strategy An integrated set of actions designed by a firm to produce or deliver goods or services that customers perceive as adding value – price may exceed what the firm’s target customers are willing to pay – Non-commodity products – customers value differentiated features more than they value low cost
- 12. 12 Differentiation Strategy • Add downstream value – lower buyer cost – raise buyer performance • Cost – Add value to buyer’s value: reduce downstream processing time, search time, transaction costs, defect rates, direct costs, learning curves, labor, space, installation, etc. (e.g., CRM software)
- 13. 13 Differentiation Strategy Some differentiation actions required by this strategy: – develop new “systems” and processes – signal and shape buyer perceptions – quality focus – capability in R&D Implication - maximize human capital contributions
- 14. 14 Differentiation and the Five Forces • Rivalry - brand loyalty to differentiated products reduces price competition • Buyers – differentiated products less price elastic • Suppliers – absorb price increases (higher margins), pass along higher prices (buyer loyalty) • Entrants – must surpass proven products or be equivalent at lower price • Substitutes – diff raises switching costs
- 15. 15 Pitfalls of Differentiation Strategies • Differentiating on characteristics not valued by buyers (e.g., HP) • Over-differentiating • Price premium is too high • Failing to signal value • Focusing on product instead of entire value chain
- 16. 16 Focused Business-Level Strategies A focus strategy must exploit a narrow target’s differences from the balance of the industry by: – isolating a particular buyer group – isolating a unique segment of a product line – concentrating on a particular geographic market – finding their “niche”
- 17. 17 Factors Driving Focus Strategies • Large firms overlook small niches • Firm may lack resources to compete in the broader market • May be able to serve a narrow market segment more effectively than can larger industry-wide competitors • Focus may allow the firm to direct resources to certain value chain activities to build competitive advantage
- 18. 18 Major Risks of Focused Strategies • Firm may be “outfocused” by competitors • Large competitor may set its sights on your niche market • Preferences of niche market may change to match those of broad market
- 19. 19 Advantages of Integrated Strategy A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to: – adapt quickly to environmental changes – learn new skills and technologies more quickly – effectively leverage its core competencies while competing against its rivals
- 20. 20 Benefits of Integrated Strategy • Successful firms using this strategy have above-average returns • Firm offers two types of values to customers – some differentiated features (but less than a true differentiated firm) – relatively low cost (but now as low as the cost leader’s price)
- 21. 21 Major Risks of Integrated Strategy • An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm) • The firm may become “stuck in the middle” lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy
- 22. 22 Other Business-Level Strategies • Strategic Alliances and Partnerships • Mergers and Acquisitions • Vertical Integration • Outsourcing • Offensive and Defensive Strategies • Web Site Strategies • First-Mover Advantages and Disadvantages • Business Model • Functional-Area Strategies
- 23. REFERENCES Azhar kazmi, Business policy and strategic management, Second edition, Tata McGraw hill Publishing Company limited,2004 C.N. Sontakki, Strategic Management Text And Cases, Kalyani Publishers, New Delhi 2011. 23
- 24. THANK YOU 24